The domestic benchmarks have witnessed strong rally in the last one year, thanks to optimism on economic rebound coupled with dovish tone from the Reserve Bank of India and progress on the world’s largest Covid-19 vaccination drive. The broader peers, the midcap and smallcap indices, outperformed the domestic benchmarks and delivered solid returns during this period as investors bet on high-risk stocks with expectation of more price appreciation.
The BSE Sensex has climbed 19% over the last one year, while the BSE Smallcap and BSE Midcap indices rallied 59% and 31% over the 12-month period. Some smallcap stocks continued their stellar run this year as investors bet on companies with low valuations to maximise their returns. Within the smallcap space, non-banking financial company Poonawalla Fincorp is one such multibagger stock that has delivered nearly 500% returns to its shareholders in just one year.
Poonawalla Fincorp, previously known as Magma Fincorp, is a Pune-based financial services firm controlled by Adar Poonawalla-led Rising Sun Holdings, which holds majority stake in the company. Poonawalla is also the chief executive officer of Serum Institute of India, which manufactured the Covishield (Oxford-AstraZeneca) vaccine against Covid-19.
From ₹47 to ₹283: This stock turned multibagger in one year
Formed in the year 1978, Poonawalla Fincorp saw its shares rise from ₹47.15 on February 1, 2021, to ₹282.75 per share intraday today, delivering a massive return of 499% to its shareholders in this period. An investment of ₹1 lakh in this multibagger stock on February 1, 2021, would have become around ₹6 lakh at present.
The stock gained buying momentum after Cyrus Poonawalla group announced to buy a 60% stake in this NBFC in February 2021. Adar Poonawalla became the chairman of company in July 2021, following the acquisition of controlling stake by Rising Sun Holdings.
With a market capitalisation of ₹21,558 crore, this smallcap stock has climbed 62% in past six months and 28% since the beginning of this year (year-to-date basis). It has also given decent returns over the long term period, rising 187% in three years, 190% in five years, and nearly 390% over 10 years.
On Monday, Poonawalla Fincorp shares opened higher at ₹280.90 against previous close price of ₹275.60 and gained as much as 2.6% to hit a high of ₹282.75 in first two-hour of day’s trade so far. The NBFC stock has been gaining for the last four sessions and has gained 6.4% during this period.
On the technical front, the stock is trading at a discount compared to its average historical valuations, albeit higher than 5-day, 20-day, 50-day, 100-day, and 200-day moving averages according to stock research platform Markets Mojo. The technical trend has improved from ‘mildly bullish’ to bullish’ on December 2, 2021, and has rallied 43.16% since then.
Stock rally not in sync with financial performance
For the financial year 2020-21, the non-banking lender reported a loss of ₹558.96 crore as against a profit of ₹27.05 crore in 2019-20. Total income for the year also fell to ₹2,352.48 crore from ₹2,562.88 crore in FY20. The earnings were impacted by one-time write-off impact of ₹274 crore and additional management overlay provision of ₹621 crore during the quarter ended March 2021.
During the April-June quarter of the current fiscal, Poonawalla Fincorp posted net profit of ₹64.54 crore, up 71.15% against ₹37.71 crore during the previous quarter ended June 2020. Sales declined 15.83% to ₹476.30 crore, compared to ₹565.88 crore in the year-ago period.
For the second quarter ended September 2021, the company had reported a 153% rise in its consolidated net profit to ₹96 crore, compared with ₹38 crore during the corresponding quarter of the previous financial year. However, total income dropped nearly 15% to ₹513 crore, against ₹603 crore in the year-ago period.
Poonawalla Fincorp’s board is scheduled to meet on February 1 to consider and approve the unaudited financial results of the company for the quarter ended December 31, 2021. The board will also consider raising of funds upto ₹4,000 crore through issuance of non-convertible debt securities on private placement during the financial year 2022-23.
